VanEck Vectors FTSE Global Infrastructure (Hedged) ETF (ASX Code: IFRA) ARSN 611 369 058 Interim report For the period from 3 May 2016 (commencement of operations) to 30 September 2016
VanEck Vectors FTSE Global Infrastructure (Hedged) ETF (ASX Code: IFRA) ARSN 611 369 058 Interim report For the period from 3 May 2016 (commencement of operations) to 30 September 2016 Contents Page Directors report 2 Auditor s independence declaration 5 Statement of comprehensive income 6 Statement of financial position 7 Statement of changes in equity 8 Statement of cash flows 9 Notes to the financial statements 10 Directors declaration 20 Independent auditor s review report to the unitholders of the VanEck Vectors FTSE Global Infrastructure (Hedged) ETF 21 This interim report covers the as an individual entity. The Responsible Entity of the is VanEck Investments Limited (ACN 146 596 116) (AFSL 416755). The Responsible Entity s registered office is: VanEck Investments Limited Aurora Place Level 4, 88 Phillip Street Sydney NSW 2000-1-
Directors report Directors report The Directors of VanEck Investments Limited (ACN 146 596 116), the Responsible Entity of the VanEck Vectors FTSE Global Infrastructure (Hedged) ETF (the Fund ), present their report together with the financial statements of the Fund for the period from 3 May 2016 to 30 September 2016. Principal activities The Fund invests in a diversified portfolio of global infrastructure securities in accordance with provisions of the Fund s Constitution. The Fund did not have any employees during the period. There were no significant changes in the nature of the Fund s activities during the period. Directors The following persons held office as directors of VanEck Investments Limited during the period and up to the date of this report: Jan van Eck Bruce Smith Arian Neiron Michael Brown Jonathan Simon Review and results of operations During the period, the Fund invested in listed equities as set out in the governing documents of the Fund and in accordance with the provisions of the Fund s Constitution. The Fund generally invests in the securities that are constituents of the FTSE Developed Core Infrastructure 50/50 Hedged into Australian Dollars Index (the Index ) and aims to track the performance of the Index (with net dividends reinvested) in Australian dollars, before taking into account fees, expenses and tax. Results The performance of the Fund, as represented by the results of its operations, was as follows: Period from 3 May 2016 to 30 September 2016 Operating profit/(loss) before finance costs attributable to unitholders ($ 000) 382 Distribution to unitholders ($ 000) 146 Distribution (cents per unit - CPU) 22.37 Significant changes in the state of affairs The Fund was constituted on 16 March 2016, registered by Australian Securities and Investments Commission (ASIC) as a managed investment scheme on 24 March 2016 and commenced operations on 3 May 2016. Accordingly these financial statements only include the current financial period, covering the period from the commencement of operations of the Fund to 30 September 2016. -2-
Directors report (continued) Directors report (continued) Matters subsequent to the end of the financial period No matter or circumstance has arisen since 30 September 2016 that has significantly affected, or may significantly affect: (i) (ii) (iii) the operations of the Fund in future financial years, or the results of those operations in future financial years, or the state of affairs of the Fund in future financial years. Likely developments and expected results of operations The Fund will continue to be managed in accordance with the investment objectives and guidelines as set out in the governing documents of the Fund and in accordance with the provisions of the Fund s Constitution. The results of the Fund s operations will be affected by a number of factors, including the performance of investment markets in which the Fund invests. Investment performance is not guaranteed and future returns may differ from past returns. As investment conditions change over time, past returns should not be used to predict future returns. The future returns are dependent upon the performance of the underlying Index. The Fund s investment objective and strategy remains unchanged which is to track the performance of the Index. Accordingly the future returns of the Fund are dependent on the performance of the Index. Indemnity and insurance of officers No insurance premiums are paid for out of the assets of the Fund in regards to insurance cover provided to either the officers of VanEck Investments Limited or the auditors of the Fund. So long as the officers of VanEck Investments Limited act in accordance with the Fund s Constitution and the Law, the officers remain indemnified out of the assets of the Fund against losses incurred while acting on behalf of the Fund. Indemnity of auditors The auditors of the Fund are in no way indemnified out of the assets of the Fund. Proceedings on behalf of the Fund No person has applied for leave of Court to bring proceedings on behalf of the Fund or intervene in any proceedings to which the Fund is a party for the purpose of taking responsibility on behalf of the Fund for all or any part of those proceedings. The Fund was not a party to any such proceedings during the period. Environmental regulation The operations of the Fund are not subject to any particular or significant environmental regulations under a Commonwealth, State or Territory law. There have been no known significant breaches of any other environmental requirement applicable to the Fund. Rounding of amounts to the nearest thousand dollars The Fund is an entity of a kind referred to in ASIC Corporations (Rounding in Financial/Directors Reports) Instrument 2016/191 issued by the Australian Securities and Investments Commission (ASIC) relating to the rounding off of amounts in the Directors report. Amounts in the Directors report have been rounded to the nearest thousand dollars in accordance with that ASIC Corporations Instrument, unless otherwise indicated. -3-
Ernst & Young 200 George Street Sydney NSW 2000 Australia GPO Box 2646 Sydney NSW 2001 Tel: +61 2 9248 5555 Fax: +61 2 9248 5959 ey.com/au Auditor s Independence Declaration to the Directors of VanEck Investments Limited, as Responsible Entity for VanEck Vectors FTSE Global Infrastructure (Hedged) ETF As lead auditor for the review of for the interim period ended 30 September 2016, I declare to the best of my knowledge and belief, there have been: a) no contraventions of the auditor independence requirements of the Corporations Act 2001 in relation to the review; and b) no contraventions of any applicable code of professional conduct in relation to the review. Ernst & Young Rohit Khanna Partner Sydney 8 December 2016 A member firm of Ernst & Young Global Limited Liability limited by a scheme approved under Professional Standards Legislation
Statement of comprehensive income Statement of comprehensive income Investment income Dividend and distribution income 124 Net gains/(losses) on financial instruments held at fair value through profit or loss 361 Other operating income/(loss) (38) Total investment income/(loss) 447 Expenses Management fees 20 Transaction costs 18 Dividend withholding tax 24 Other operating expenses 3 Total operating expenses 65 Profit/(loss) for the period 382 Other comprehensive income for the period - Total comprehensive income for the period 382 Notes Period from 3 May 2016 to 30 September 2016 $ 000 The above Statement of comprehensive income should be read in conjunction with the accompanying notes. -6-
Statement of financial position As at 30 September 2016 Statement of financial position Notes As at 30 September 2016 $ 000 Assets Cash and cash equivalents 51 Due from brokers - receivable for securities sold 80 Receivables 29 Financial assets held at fair value through profit or loss 4 15,165 Total assets 15,325 Liabilities Bank overdraft 67 Due to brokers - payable for securities purchased 213 Payables 10 Distributions payable 90 Financial liabilities held at fair value through profit or loss 5 1 Total liabilities 381 Equity 14,944 The above Statement of financial position should be read in conjunction with the accompanying notes. -7-
Statement of changes in equity Statement of changes in equity Period from 3 May 2016 to 30 September 2016 $ 000 Total equity at the beginning of the period - Issue of redeemable participating units 14,708 Comprehensive income for the period 382 Distributions (146) Total equity at the end of the period 14,944 Movement in units in issue are disclosed in note 6 to the financial statements. The above Statement of changes in equity should be read in conjunction with the accompanying notes. -8-
Statement of cash flows Statement of cash flows Period from 3 May 2016 to 30 September 2016 $ 000 Cash flows from operating activities Proceeds from sale of financial instruments held at fair value through profit or loss 1,252 Purchase of financial instruments held at fair value through profit or loss (15,922) Dividend and distribution received 77 Management costs paid (16) Payment of other expenses (59) Net cash inflow/(outflow) from operating activities (14,668) Cash flows from financing activities Proceeds from applications by unitholders 14,708 Distributions paid (56) Net cash inflow/(outflow) from financing activities 14,652 Net increase/(decrease) in cash and cash equivalents (16) Cash and cash equivalents at the beginning of the period - Cash and cash equivalents at the end of the period (16) The above Statement of cash flows should be read in conjunction with the accompanying notes. -9-
Notes to the financial statements Contents of the notes to the financial statements Page 1 General information 11 2 Summary of significant accounting policies 11 3 Fair value measurement 16 4 Financial assets held at fair value through profit or loss 18 5 Financial liabilities held at fair value through profit or loss 19 6 Units in issue 19 7 Events occurring after the reporting period 19 8 Contingent assets and liabilities and commitments 19-10-
Notes to the financial statements (continued) 1 General information These financial statements for the period ended 30 September 2016 cover the VanEck Vectors FTSE Global Infrastructure (Hedged) ETF (the Fund ) as an individual entity. The Fund is an Australian registered managed investment scheme, was constituted on 16 March 2016, registered by Australian Securities and Investments Commission (ASIC) as a managed investment scheme on 24 March 2016 and commenced operations on 3 May 2016. The Fund will terminate in accordance with the provisions of the Fund s Constitution. The Responsible Entity of the Fund is VanEck Investments Limited (the Responsible Entity ). The Responsible Entity s registered office is Aurora Place, Level 4, 88 Phillip Street, Sydney, NSW, 2000. These financial statements are presented in Australian dollars, which is the Fund s functional and presentation currency. The Fund invests in a diversified portfolio of global infrastructure securities in accordance with provisions of the Fund s Constitution. The financial statements were authorised for issue by the directors on 8 December 2016. The directors of the Responsible Entity have the power to amend and reissue the financial statements. 2 Summary of significant accounting policies The principal accounting policies applied in the preparation of these financial statements are set out below. These policies have been consistently applied throughout the period presented, unless otherwise stated in the following text. (a) Basis of preparation These general purpose interim financial statements have been prepared in accordance with Australian Accounting Standards AASB 134 Interim Financial Reporting and Interpretations issued by the Australian Accounting Standards Board ( AASB ) and the Corporations Act 2001 in Australia. Compliance with AASB 134 ensures compliance with International Financial Reporting Standards IAS 34 Interim Financial Reporting. The Fund is a for-profit fund for the purpose of preparing the financial statements. The financial statements are prepared on the basis of fair value measurement of assets and liabilities except where otherwise stated. The Statement of financial position is presented on a liquidity basis. These interim financial statements do not include all the notes of the type normally included in the annual financial statements. Accordingly, these interim financial statements are to be read in conjunction with any public announcements made in respect of the Fund during the interim reporting period in accordance with the continuous disclosure requirements of the Corporations Act 2001. (b) Changes in accounting standards There are no standards, interpretations or amendments to existing standards that are effective for the first time for the period beginning 3 May 2016 that have a material impact on the Fund. (c) Financial instruments (i) Classification The Fund s investments are categorised as at fair value through profit or loss. They comprise: Financial instruments designated at fair value through profit or loss upon initial recognition These include financial assets and financial liabilities that are not held for trading purposes and which may be sold. These are investments in equity securities and derivative financial instruments such as foreign currency forward contracts. The Fund designates all foreign currency forward contracts as hedging instruments in a hedging relationship. -11-
Notes to the financial statements (continued) 2 Summary of significant accounting policies (continued) (c) Financial instruments (continued) (i) Classification (continued) Financial instruments designated at fair value through profit or loss at inception are those that are managed and their performance evaluated on a fair value basis in accordance with the Fund s documented investment strategy. The Fund s policy is for the Investment Manager to evaluate the information about these financial instruments on a fair value basis together with other related financial information. (ii) Recognition/derecognition The Fund recognises financial assets and financial liabilities on the date it becomes party to the contractual agreement (trade date) and recognises changes in the fair value of the financial assets or financial liabilities from this date. Investments are derecognised when the right to receive cash flows from the investments have expired or have been transferred and the Fund has transferred substantially all of the risks and rewards of ownership. (iii) Measurement Financial assets and liabilities held at fair value through profit or loss At initial recognition, the Fund measures a financial asset at its fair value. Transaction costs of financial assets carried at fair value through profit or loss are expensed in the Statement of comprehensive income. Subsequent to initial recognition, all financial assets and financial liabilities at fair value through profit or loss are measured at fair value. Gains and losses arising from changes in the fair value of the financial assets or financial liabilities at fair value through profit or loss category are presented in the Statement of comprehensive income within net gains/(losses) on financial instruments held at fair value through profit or loss in the period in which they arise. This also includes dividend expense on short sales of securities, which have been classified at fair value through profit or loss. The fair value of financial assets and liabilities traded in active markets is subsequently based on their quoted market prices at the end of the reporting period without any deduction for estimated future selling costs. The quoted market price used for financial assets held by the Fund is the current bid price and the quoted price for financial liabilities is the current asking price. For further details on how the fair value of financial instruments are determined, refer to note 3 of the financial statements. (iv) Offsetting financial instruments Financial assets and liabilities are offset and the net amount reported in the Statement of financial position where the Fund currently has a legally enforceable right to offset the recognised amounts and there is an intention to settle on a net basis, or realise the asset and settle the liability simultaneously. At the end of the reporting period, there are no financial assets or liabilities offset or which could be offset in the Statement of financial position. (d) Redeemable participating units Units are redeemable at the unitholders option and are classified as equity. The units can be put back to the Fund at any time for cash based on the redemption price. The fair value of redeemable units is measured at the redemption amount that is payable (based on the redemption unit price) at the end of the reporting period if unitholders exercised their right to redeem the units in the Fund. -12-
Notes to the financial statements (continued) 2 Summary of significant accounting policies (continued) (e) Cash and cash equivalents For the purpose of presentation in the Statement of cash flows, cash and cash equivalents includes cash on hand, deposits held at call with financial institutions, other short term, highly liquid investments with original maturities of three months or less from the date of acquisition that are readily convertible to known amounts of cash and which are subject to an insignificant risk of changes in value and bank overdrafts. Bank overdrafts are classified as liabilities in the Statement of financial position. Payments and receipts relating to the purchase and sale of investment securities are classified as cash flows from operating activities, as movements in the fair value of these securities represent the Fund s main income generating activity. (f) Investment income Interest income is recognised in the Statement of comprehensive income using the effective interest method. The effective interest method is a method of calculating the amortised cost of a financial asset or financial liability and of allocating the interest income or interest expense over the relevant period. The effective interest rate is the rate that exactly discounts estimated future cash payments or receipts throughout the expected life of the financial instrument, or a shorter period where appropriate, to the net carrying amount of the financial asset or liability. When calculating the effective interest rate, the Fund estimates cash flows considering all contractual terms of the financial instrument (for example, prepayment options) but does not consider future credit losses. The calculation includes all fees paid or received between the parties to the contract that are an integral part of the effective interest rate, including transaction costs and all other premiums or discounts. Dividend income is recognised on the ex-dividend date with any related foreign withholding tax recorded as an expense. The Fund currently incurs withholding tax imposed by certain countries on investment income. Such income is recorded gross of withholding tax in the Statement of comprehensive income. (g) Expenses All expenses are recognised in the Statement of comprehensive income on an accruals basis. (h) Income tax Under current legislation, the Fund is not subject to income tax as unitholders are presently entitled to the income of the Fund. Financial instruments held at fair value may include unrealised capital gains. Should such a gain be realised, that portion of the gain that is subject to capital gains tax will be distributed so that the Fund is not subject to capital gains tax. Realised capital losses are not distributed to unitholders but are retained in the Fund to be offset against any realised capital gains. If realised capital gains exceed realised capital losses, the excess is distributed to unitholders. The Responsible Entity may elect to distribute concessional capital gains when they arise. This may occur even when total capital losses exceed capital gains. The benefits of tax credits paid are passed on to unitholders. The Fund currently incurs withholding tax imposed by certain countries on investment income. Such income is recorded gross of withholding tax in the Statement of comprehensive income. (i) Distributions In accordance with the Fund s Constitution, the Fund distributes its distributable taxable income adjusted for amounts determined by the Responsible Entity, to unitholders by cash or reinvestment. The distributions are usually payable on a quarterly basis. The distributions to unitholders are recognised in the Statement of changes in equity. -13-
Notes to the financial statements (continued) 2 Summary of significant accounting policies (continued) (j) Foreign currency translation (i) Functional and presentation currency Items included in the Fund s financial statements are measured using the currency of the primary economic environment in which it operates (the functional currency ). This is the Australian dollar, which reflects the currency of the economy in which the Fund competes for funds and is regulated. The Australian dollar is also the Fund s presentation currency. (ii) Transactions and balances Foreign currency transactions are translated into the functional currency using the exchange rates prevailing at the dates of the transactions. Foreign exchange gains and losses resulting from the settlement of such transactions and from the translations at period end exchange rates, of monetary assets and liabilities denominated in foreign currencies are recognised in the Statement of comprehensive income. Non-monetary items that are measured at fair value in a foreign currency are translated using the exchange rates at the date when fair value was determined. Translation differences on assets and liabilities carried at fair value are reported in the Statement of comprehensive income on a net basis within net gains/(losses) on financial instruments held at fair value through profit or loss. (k) Due from/to brokers Amounts due from/to brokers represent receivables for securities sold and payables for securities purchased that have been contracted for but not yet delivered by the end of the period. Trades are recorded on trade date, and for equities, normally settled within three business days. A provision for impairment of amounts due from brokers is established when there is objective evidence that the Fund will not be able to collect all amounts due from the relevant broker. Indicators that the amount due from brokers is impaired include significant financial difficulties of the broker, probability that the broker will enter bankruptcy or financial reorganisation and default in payments. (l) Receivables Receivables may include amounts for dividends, trust distributions, and interest. Dividends and trust distributions are accrued when the right to receive payment is established. Interest is accrued at the end of the reporting period from the time of last payment. Amounts are generally received within 30 days of being recorded as receivables. (m) Payables Payables include liabilities and accrued expenses owed by the Fund which are unpaid as at the end of the reporting period. The distribution amount payable to unitholders as at the end of the reporting period is recognised separately on the Statement of financial position as unitholders are presently entitled to the distributable income under the Fund s Constitution. (n) Applications and redemptions Application amounts can be paid by cash or in the form of a parcel of prescribed securities transferred to the Responsible Entity s custodian. The parcel of securities related to in-specie applications generally reflect the characteristics of the FTSE Developed Core Infrastructure 50/50 Hedged into Australian Dollars Index. Investors may purchase units by trading on the Australian Securities Exchange (ASX). Unitholders can only redeem units if they are a Qualifying Australian Resident (as defined in the Product Disclosure Statement (PDS)), and use a Stockbroker acting as principal. Investors may sell units by trading on the ASX. Unit prices are determined by reference to the net assets of the Fund divided by the number of units on issue. For unit pricing purposes, net assets are determined using the last reported trade price for securities. These prices may differ from the market. -14-
Notes to the financial statements (continued) 2 Summary of significant accounting policies (continued) (o) Goods and Services Tax (GST) The GST incurred on the costs of various services provided to the Fund by third parties such as management, administration and custodian services where applicable have been passed onto the Fund. The Fund qualifies for Reduced Input Tax Credits (RITC) at a rate of at least 55%. Hence fees for these services and any other expenses have been recognised in the Statement of comprehensive income net of the amount of GST recoverable from the Australian Taxation Office (ATO). Accounts payable are inclusive of GST. The net amount of GST recoverable from the ATO is included in receivables in the Statement of financial position. Cash flows relating to GST are included in the Statement of cash flows on a gross basis. (p) Use of estimates The Fund may make estimates and assumptions that affect the reported amounts of assets and liabilities within the next financial period. Estimates are continually evaluated and based on historical experience and other factors, including expectations of future events that are believed to be reasonable under the circumstances. For the majority of the Fund s financial instruments, quoted market prices are readily available. For certain other financial instruments, including amounts due from/to brokers, accounts payable and accrued expenses, the carrying amounts approximate fair value due to the immediate or short-term nature of these financial instruments. (q) Hedge accounting The Fund designates certain derivatives as fair value hedges under AASB 139 Financial Instruments: Recognition and Measurement. At the inception of the hedge relationship, the Fund documents the relationship between the hedging instrument and the hedged item, along with its risk management objectives and its strategy for undertaking various hedge transactions. Furthermore, at the inception of the hedge and on an ongoing basis, the Fund documents whether the hedging instrument is highly effective in offsetting changes in fair values attributable to the hedged risk. (r) Fair value hedges Changes in fair value of derivatives that are designated and qualify as fair value hedges are recorded in the Statement of comprehensive income immediately, together with any changes in the fair value of the hedged asset or liability that is attributable to the hedged risk. Hedge accounting is discontinued when the Fund revokes the hedging relationship, when the hedging instrument expires or is sold, terminated, or exercised, or when it no longer qualifies for hedge accounting. (s) New accounting standards and interpretations Certain new accounting standards and interpretations have been published that are not mandatory for the 30 September 2016 reporting period and have not been early adopted by the Fund. The directors assessment of the impact of these new standards (to the extent relevant to the Fund) and interpretations is set out below: (i) AASB 9 Financial Instruments (and applicable amendments), (effective from 1 January 2018) AASB 9 Financial Instruments addresses the classification, measurement and derecognition of financial assets and financial liabilities. It has now also introduced revised rules around hedge accounting and impairment. The standard is not applicable until 1 January 2018 but is available for early adoption. The directors do not expect this to have a significant impact on the recognition and measurement of the Fund s financial instruments as they are carried at fair value through profit or loss. The derecognition rules have not been changed from the previous requirements. AASB 9 introduces a new impairment model. However, as the Fund s investments are all held at fair value through profit or loss, the change in impairment rules will not impact the Fund. The Fund has not yet decided when to adopt AASB 9. -15-
Notes to the financial statements (continued) 2 Summary of significant accounting policies (continued) (s) New accounting standards and interpretations (continued) (ii) AASB 15 Revenue from Contracts with Customers, (effective from 1 January 2018) AASB 15 will replace AASB 118 Revenue which covers contracts for goods and services and AASB 111 Construction Contracts which covers construction contracts. AASB 15 is based on the principle that revenue is recognised when control of a good or service transfers to a customer so the notion of control replaces the existing notion of risks and rewards. The Fund s main source of income are interest, dividends and distributions and gains on financial instruments held at fair value. All of these are outside the scope of the new revenue standard. As a consequence, the directors do not expect the adoption of the new revenue recognition rules to have a significant impact on the Fund s accounting policies or the amounts recognised in the financial statements. The Fund has not yet decided when to adopt AASB 15. There are no other standards that are not yet effective and that are expected to have a material impact on the Fund in the current or future reporting periods and on foreseeable future transactions. (t) Rounding of amounts The Fund is an entity of a kind referred to in ASIC Corporations (Rounding in Financial/Directors Reports) Instrument 2016/191 issued by the Australian Securities and Investments Commission (ASIC) relating to the rounding off of amounts in the financial statements. Amounts in the financial statements have been rounded to the nearest thousand dollars in accordance with that ASIC Corporations Instrument, unless otherwise indicated. 3 Fair value measurement The Fund measures and recognises the following assets and liabilities at fair value on a recurring basis Financial assets / liabilities designated at fair value through profit or loss (FVTPL) (see notes 4 and 5) Derivative financial instruments The Fund has no assets or liabilities measured at fair value on a non-recurring basis in the current reporting period. AASB 13 requires disclosure of fair value measurements by level of the following fair value hierarchy; (a) quoted prices (unadjusted) in active markets for identical assets or liabilities (level 1) (b) inputs other than quoted prices included within level 1 that are observable for the asset or liability, either directly or indirectly (level 2); and (c) inputs for the asset or liability that are not based on observable market data (unobservable inputs) (level 3) (i) Fair value in an active market (level 1) The fair value of financial assets and liabilities traded in active markets is based on their quoted market prices at the end of the reporting period without any deduction for estimated future selling costs. The Fund values its investments in accordance with the accounting policies set out in note 2 to the financial statements. For the majority of its investments, the Fund relies on information provided by independent pricing services for the valuation of its investments. The quoted market price used for financial assets held by the Fund is the current bid price; the appropriate quoted market price for financial liabilities is the current asking price. When the Fund holds derivatives with offsetting market risks, it uses mid-market prices as a basis for establishing fair values for the offsetting risk positions and applies this bid or asking price to the net open position, as appropriate. -16-
Notes to the financial statements (continued) 3 Fair value measurement (continued) (i) Fair value in an active market (level 1) (continued) A financial instrument is regarded as quoted in an active market if quoted prices are readily and regularly available from an exchange, dealer, broker, industry group, pricing service, or regulatory agency, and those prices represent actual and regularly occurring market transactions on an arm s length basis. (ii) Valuation techniques used to derive level 2 and level 3 fair value The fair value of financial assets and liabilities that are not traded in an active market is determined using valuation techniques. These include the use of recent arm s length market transactions, reference to the current fair value of a substantially similar other instrument, discounted cash flow techniques, option pricing models or any other valuation technique that provides a reliable estimate of prices obtained in actual market transactions. Where discounted cash flow techniques are used, estimated future cash flows are based on management s best estimates and the discount rate used is a market rate at the end of the reporting period applicable for an instrument with similar terms and conditions. For other pricing models, inputs are based on market data at the end of the reporting period. Fair values for unquoted equity investments are estimated, if possible, using applicable price/earnings ratios for similar listed companies adjusted to reflect the specific circumstances of the issuer. The fair value of derivatives that are not exchange traded is estimated at the amount that the Fund would receive or pay to terminate the contract at the end of the reporting period taking into account current market conditions (volatility and appropriate yield curve) and the current creditworthiness of the counterparties. The fair value of a forward contract is determined as a net present value of estimated future cash flows, discounted at appropriate market rates as at the valuation date. Some of the inputs to these models may not be market observable and are therefore estimated based on assumptions. The output of a model is always an estimate or approximation of a value that cannot be determined with certainty, and valuation techniques employed may not fully reflect all factors relevant to the positions the Fund holds. Valuations are therefore adjusted, where appropriate, to allow for additional factors including liquidity risk and counterparty risk. Recognised fair value measurements The table below presents the Fund s financial assets and liabilities measured at fair value according to the fair value hierarchy at 30 September 2016. As at 30 September 2016 Level 1 Level 2 Level 3 Total $ 000 $ 000 $ 000 $ 000 Financial assets Financial assets designated at fair value through profit or loss Equity securities 14,036 - - 14,036 Unit trusts 891 - - 891 Derivatives - 238-238 Total 14,927 238-15,165 Financial liabilities Financial liabilities designated at fair value through profit or loss Derivatives - 1-1 Total - 1-1 -17-
Notes to the financial statements (continued) 3 Fair value measurement (continued) Recognised fair value measurements (continued) The Fund s policy is to recognise transfers into and transfers out of fair value hierarchy levels as at the end of the reporting period. (i) Transfers between levels There were no transfers between the levels in the fair value hierarchy for the period from 3 May 2016 to 30 September 2016. There were also no changes made to any of the valuation techniques applied as at 30 September 2016. (ii) Fair value measurements using significant unobservable inputs (level 3) The Fund did not hold any financial instruments with fair value measurements using significant unobservable inputs during the period from 3 May 2016 to 30 September 2016. (iii) Fair values of other financial instruments The Fund did not hold any financial instruments which were not measured at fair value in the Statement of financial position. Due to their short-term nature, the carrying amounts of receivables and payables are assumed to approximate fair value. 4 Financial assets held at fair value through profit or loss As at 30 September 2016 $ 000 Designated at fair value through profit or loss Equity securities 14,036 Unit trusts 891 Derivatives 238 Total designated at fair value through profit or loss 15,165 Total financial assets held at fair value through profit or loss 15,165 This risk is managed by hedging the exposure using foreign currency forward contracts. At 30 September the net fair value of the financial assets being hedged was $13,625,234 and the net fair value of the foreign currency forward contracts was $13,718,784. The fair value of net gains/(losses) arising on the hedging instruments during the period was $285,009. The fair value of net gains/(losses) arising on the hedged items resulted from factors that included but were not restricted to foreign currency movements. -18-
Notes to the financial statements (continued) 5 Financial liabilities held at fair value through profit or loss As at 30 September 2016 $ 000 Financial assets designated at fair value through profit or loss Derivatives 1 Total designated at fair value through profit or loss 1 Total financial liabilities held at fair value through profit or loss 1 6 Units in issue Movements in the number of units during the period were as follows: Period from 3 May 2016 to 30 September 2016 $ 000 Opening balance - Applications 840 Closing balance 840 As stipulated within the Fund s Constitution, a unit confers an equal undivided, vested, and indefeasible interest in the assets as a whole, subject to the liabilities. There are no separate classes of units and each unit has the same rights attaching to it as all other units of the Fund. Capital risk management The amount of equity attributable to unitholders can change significantly on a daily basis as the Fund is subject to daily applications and redemptions at the discretion of unitholders. Daily applications and redemptions are reviewed relative to the liquidity of the Fund s underlying assets on a daily basis by the Responsible Entity. Under the terms of the Fund s Constitution, the Responsible Entity has the discretion to reject an application for units and to defer or adjust a redemption of units if the exercise of such discretion is in the best interests of unitholders. 7 Events occurring after the reporting period No significant events have occurred since the end of the reporting period which would impact on the financial position of the Fund disclosed in the Statement of financial position as at 30 September 2016 or on the results and cash flows of the Fund for the period ended on that date. 8 Contingent assets and liabilities and commitments There are no outstanding contingent assets, liabilities or commitments as at 30 September 2016. -19-
Ernst & Young 200 George Street Sydney NSW 2000 Australia GPO Box 2646 Sydney NSW 2001 Tel: +61 2 9248 5555 Fax: +61 2 9248 5959 ey.com/au Independent auditor s review report to the unit holders of the Report on the Half-Year Financial Report We have reviewed the accompanying half-year financial report of VanEck Vectors FTSE Global Infrastructure (Hedged) ETF ( the Fund ), which comprises the statement of financial position as at 30 September 2016, the statement of comprehensive income, statement of changes in equity and statement of cash flows for the half-year ended on that date, notes comprising a summary of significant accounting policies and other explanatory information, and the directors declaration. Directors Responsibility for the Half-Year Financial Report The directors of VanEck Investments Limited ( the Responsible Entity ) are responsible for the preparation of the half-year financial report that gives a true and fair view in accordance with Australian Accounting Standards and the Corporations Act 2001 and for such internal controls as the directors determine are necessary to enable the preparation of the half-year financial report that is free from material misstatement, whether due to fraud or error. Auditor s Responsibility Our responsibility is to express a conclusion on the half-year financial report based on our review. We conducted our review in accordance with Auditing Standard on Review Engagements ASRE 2410 Review of a Financial Report Performed by the Independent Auditor of the Entity, in order to state whether, on the basis of the procedures described, we have become aware of any matter that makes us believe that the financial report is not in accordance with the Corporations Act 2001 including: giving a true and fair view of the Fund s financial position as at 30 September 2016 and its performance for the half-year ended on that date; and complying with Accounting Standard AASB 134 Interim Financial Reporting and the Corporations Regulations 2001. As the auditor of VanEck Vectors FTSE Global Infrastructure (Hedged) ETF, ASRE 2410 requires that we comply with the ethical requirements relevant to the audit of the annual financial report. A review of a half-year financial report consists of making enquiries, primarily of persons responsible for financial and accounting matters, and applying analytical and other review procedures. A review is substantially less in scope than an audit conducted in accordance with Australian Auditing Standards and consequently does not enable us to obtain assurance that we would become aware of all significant matters that might be identified in an audit. Accordingly, we do not express an audit opinion. Independence In conducting our review, we have complied with the independence requirements of the Corporations Act 2001. We have given to the directors of the company a written Auditor s Independence Declaration, a copy of which is included in the Directors Report. A member firm of Ernst & Young Global Limited Liability limited by a scheme approved under Professional Standards Legislation
Page 2 Conclusion Based on our review, which is not an audit, we have not become aware of any matter that makes us believe that the half-year financial report of is not in accordance with the Corporations Act 2001, including: a) giving a true and fair view of the Fund s financial position as at 30 September 2016 and of its performance for the half-year ended on that date; and b) complying with Accounting Standard AASB 134 Interim Financial Reporting and the Corporations Regulations 2001. Ernst & Young Rohit Khanna Partner Sydney 8 December 2016 A member firm of Ernst & Young Global Limited Liability limited by a scheme approved under Professional Standards Legislation